Group Companies

Budget Management

How do I manage my advertising budget during Covid-19 and beyond?

Roland Vaile was the first Marketeer to analyse and prove the power of increased advertising in a recession. His findings, based on the Great Depression in 1920-1921, demonstrated 2 key lessons:

  1. Companies that increased their ad budgets during the recession grew sales much faster than their rivals – not only during the downturn but also beyond it.
  2. Companies that decreased their advertising spend saw their sales decline both during the recession and then for the following three years. In relative terms, these companies actually underperformed even those that elected to do no advertising at all.

In the last 100 years numerous studies have confirmed Vaile’s main finding. Despite studying different firms across very different recessions, each study revealed that maintaining or even increasing ad spend during a downturn is invariably the right thing to do because it sets a company up to survive the downturn (a little) and then prosper (a lot) in the period that follows.

More recently Stephen King carried out a similar study and found that Companies increasing ad spend by up to 20% saw an average market share gain of 0.5% and those that increased beyond the 20% threshold recorded average gains of 0.9%. However, it’s important to note that these market share gains slowed down significantly post-recession, but crucially were maintained.

Finally, we turn to Gerry Tellis and his son Kethan who together published a paper for the Journal of Advertising Research after examining over 40 empirical studies of the impact of advertising on sales during and after a recession.

One of their main conclusions is quoted below:

“…most firms tend to cut back on advertising during a recession. This behaviour reduces noise and increases the effectiveness of advertising of any single firm that advertises. Thus, the firm that increases advertising in this environment can enjoy higher sales and market share. When the economy expands, all firms tend to increase advertising. At that point, no single firm gains much by that increase. The gains of the firms that maintained or increased advertising during a recession, however, persist. This theory is also the most reasonable explanation for all the empirical effects of GDP on advertising and of advertising on sales, market share and profitability. It is also a simple, but strong, refutation of the theory for cutting back on advertising during a recession.”

From Research on Advertising in a Recession: A Critical Review and Synthesis by Tellis and Tellis

What does this mean for my company amidst Covid-19?

It means that we as marketers need to be smart. We need to be tactical so that we can set our brands apart from the competition at a time that may seem to be most difficult. Mark Ritson claims that there are 4 important things to remember here:

  1. Advertising has both short and long-term effects. These longer-term effects can take several years to fully manifest and they are largely invisible in the immediate, inherently short-term metric called ROI.
  2. Less able marketers will now cut their ad budgets because their boss told them to or because they actually think that the savings from killing a campaign will be superior to any impact that advertising would have generated.
  3. By maintaining ad budgets at current levels this year and next, the same investment will have a much greater impact because competitors have either gone bust and stopped advertising or reduced their ad spend significantly – see point two.
  4. Ramping ad spend back up when the recession ends is relatively pointless because (and I refer you back to point one above) it takes time for advertising to achieve its ultimate, longer term effects.

The recession is, because of points one to four, an unprecedented opportunity to increase advertising and grow market share.

If you’d like to talk through any of this feel free to reach out for a chat at [email protected]